Seeking Alpha
Recommended for you:
Long/short equity
Profile| Send Message|
( followers)  

The internet/information provider industry group is one of the most dynamic and positive. It is growing on a worldwide scale that suggests that profits are lucrative to wise investors. In the U. S., the leader is Google (NASDAQ:GOOG) and in China, it is Baidu (BIDU). You may not know that there are two other Chinese companies that are also doing a good job. Both Sohu (NASDAQ:SOHU) and Youku (NYSE:YOKU) will come into their own in the coming years.

On the U.S. side, I look at Google, the newbie Facebook (NASDAQ:FB), Yahoo (NASDAQ:YHOO) and Akamai (NASDAQ:AKAM), etc. and smile. The market capitulation of GOOG and FB is five times greater than the three Chinese companies combined. For me that raises the question about just how much demand is there? Advertising revenue is one thing but just maybe that too will wane.

Most analysts remain positive about industry growth. However, BIDU's price per share, over the past two months, is down over 25%. For me that is a large hit knowing the U.S. and Chinese general markets were caving in and that valuations, two months ago were not very positive.

I mentioned in my recent articles that the signals were suggesting that overall industry growth is slowing. There seems to be a flow of early warnings regarding revenue and earnings growth dropping off. Longer-term projections confirm this negative trend may continue for a year or more. I have some problems with the guidance that many Chinese companies are posting. They are - and remain - much higher than in domestic companies like GOOG.

I have found that conservative valuation analytics nearly always foretell the near- to short-term direction of a company's share price.

For those of you who have requested a valuation for Baidu, I have included this table. Thanks for asking.

Valuation for Baidu

Current Price:

$114.00

Comments: These are not strong Valuations and Target Price Projections. The Valuation Divergence is negative. When I do further fundamental studies, the result neither improves nor declines. Projected earnings growth for BIDU indicates that it will be declining through 2015. My technicals are currently graded as, "poor" as are my consensus opinions.

This suggests that BIDU will continue to follow the general market indices. (see the below 20-year chart).

Security's valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying BIDU due my forecast of a bearish technical cycle.

Target Price:

Plus 10+% / minus 22+% from the current price.

Trailing P/E:

35.2

Forward P/E (fye 12/ date):

18.4

PEG Ratio:

0.8 - very low

Price to Sales:

16.0 - very high

Price to Book:

15.2 - very high

Dividend

-0-%

Return on Investment (R.O.I.)

50 % - too good!

Valuation Divergence:

(minus) - 24+% from current the price.

Source of raw data: Finviz.

Projected Price is calculated and produces a probable range of the current price over the coming one to three months. Fundamental Valuation and Technical Opinion is calculated and translated into a Rating. See the below Report Card. I often suggest cash and patience as an alternative.

Report Card

Company Symbol

Fundamental - weighting (40%)

Technical - weighting (35%)

Consensus Opinion - weighting (25%)

Report Card -Grade: ( 0 - 100 / A - F ) - (ascending / status quo / descending)

BIDU

Good

Poor

Poor

71 / C- -- descending

FB

No data available

No data available

No data available

75 / C - My Early Opinion is not positive

GOOG

Good

Good

Good

78 / C -- descending

SOHU

Good

Very Poor

Good

79 / C+ -- status quo

YOKU

Good

Very Poor

Good

79 / C+ -- status quo

AKAM

Good

Very Poor

Good

79 / C+ -- status quo

My weighted Fundamental, Technical and Consensus Opinion ratings range from Excellent to Very Poor. Grades below 90 / A are not current (never are) candidates for buying. Grades above 60 / F are not current (never are) candidates for short selling. Information and data are ever changing, so be alert. Every company's "Grade" can be from a neutral grade (60 to 90 / D to B) to a buy (greater than 90) or short sale (less than 60) in a very short time.

My methodology for grading all securities is by comparative analytics using my weighted fundamental, technical and consensus opinion date. If you were to go to MSN Scouter, you would find a very similar methodology for their rating any given company. They use several more criteria but give each receives a letter grade of A - F. For example: Apple, Inc. (NASDAQ:AAPL) has for several years received a very high grade fundamentally as well as for their consensus opinion. When the technical weighting falls so does the technical "grade" it will receive. An example of a negative company would be Research in Motion Limited. (RIMM). Here the company has very poor grades in all three of my criterion. The difference between MSN Scouter and my work / analytics is the methodology used to arrive at the appropriate "grade" for a given company.

Further support for the above notes can be read in my Instablog article on "My Rotation Model."

Industry Status

The internet information provider industry is and has been very strong since early 2009. This fact is applicable, both fundamentally and on the charts. Baidu is technically in sync with its fundamentals and is in stride with its industry. Under normal circumstances this would be a positive remark. However, in the case of BIDU, looking at the above tables and the chart below tells us a mixed message. That is not unusual and only time will provide clarity as to that old question. The question that is yet unanswered is, do you buy, sell or hold?

Click to enlarge.

My criterion for taking a bullish position is that the company must have the prospect within its fundamental valuation and technical chart to outperform the general market, its sector, and industry group.

Market Status

I use several indices in my focus to identify the ongoing bullish and bearish inflection points. The New York Composite Index is represented well by the ETF SPDR S&P 500 (NYSEARCA:SPY). The Nasdaq Composite Index is represented well by the ETF, Powershares QQQ Trust (NASDAQ:QQQ). In my work the identification of bullish and bearish inflection points is of critical importance, so I also emphasize and use market breadth indices. Breadth does not have a tracking ETF; therefore, I have created my own excel charts.

Further support for my guidance for the general market can be read in my Instablog article on "Wednesday - General Market Update & Commentary."

Professor's Opinion

I expect both GOOG, BIDU and the above peer companies to be under moderate pressure in the coming weeks and perhaps longer. For a resumption of an uptrend, we all may have to wait a while.

Conclusion

I am bearish on both the world economies and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. It is important for you to understand that holding cash during questionable time frames is a wise choice. (This is definitely a "questionable" time frame).

Further and ongoing support for some of these companies will begin this coming Saturday. My "Saturday Update" can be read weekly in my Instablog article.

Source: Report Card: Internet Information Providers